The national government will repay the full amount of its outstanding P540-billion provisional advances to the Bangko Sentral ng Pilipinas this week, ahead of the Jan. 12, 2022 maturity date, and reduced its request for liquidity support to P300 billion next year amid the improved economic outlook, Finance Secretary Carlos Dominguez III said Wednesday.
Dominguez said in a letter to Monetary Board chairman Benjamin Diokno the government would request a lower amount of P300 billion as provisional advance in the second week of January 2022, signaling to the market “that we are on track with the unwinding of liquidity support on firmer evidence of return to economic strength.”
Dominguez revealed the plan as he lauded the “strong monetary and fiscal coordination [between the BSP and the Department of Finance] in ensuring that the Philippines remain resilient in this crisis.”
The extension of provisional advances is a temporary arrangement between the BSP and the national government to provide the government access to ample cash resources, while revenue generation was weakened and fulfillment of the borrowing program was challenged by the scale of the borrowing need and the unpredictability of financial markets amid the pandemic.
Under Section 89 of The New Central Bank Act (Republic Act No. 7653), the BSP may make direct provisional advances with or without interest to the national government to finance expenditures authorized in its annual appropriation, on condition that said advances will be repaid before the end of three months, extendible by another three months as the Monetary Board may allow following the date the national government received such provisional advances.
Initially, the advances were in the form of a zero-interest repurchase agreement transaction in the amount of P300 billion granted in March 2020 and fully repaid in September 2020. Julito G. Rada
JuThe provisional advances were then converted into zero-interest three-month loan in the amount of P540 billion, granted in October 2020 and fully repaid in December 2020. These were again accessed in January 2021, extended in April 2021 and fully repaid in July 2021.
The latest access of provisional advances was in July 2021, which was due October 2021 and extended to January 2022, but will be fully repaid in December 2021.
National Treasurer Rosalia de Leon recommended the early repayment of the P540-billion provisional advances, which would be settled on Dec. 10, on the basis of favorable cash position brought about by promising revenue collections and overwhelming support in the recent retail treasury bond offering.
“We have seen economic recovery already begin to take root as more businesses embark on a safe reopening with the successful rollout of the government’s mass vaccination program,” Dominguez said in the letter.
“The extension of new P300-billion provisional advances will ensure sufficient resources for the government to safeguard this promising but still fragile recovery,” Dominguez said.
The new P300-billion provisional advances to be requested in January will have similar terms as the earlier loan, with zero interest and three-month maturity with another three-month extension, as recommended by De Leon.
De Leon also recommended that the P300-billion advances be fully repaid before the end of June 2022 to fully unwind the liquidity support before the start of the next administration.
Funds granted under the short-term lending arrangement are not used for direct financing of government operations but serve as a liquidity gap measure that ensures the government will be able to undertake large spending in advance of anticipated revenue collections or regular borrowing proceeds.
Provisional advances will not, in their aggregate, exceed 20 percent of the average annual income of the borrower for the last three preceding fiscal years, the law states.
De Leon said the national government accessed the facility in four cycles already at volumes that were consistently below the maximum loanable amount of P564 billion in 2020 and P589 billion in 2021.